07/29/2007 04:49 pm ET Updated May 25, 2011

Your 401(k) Plan: Is It A "Match" Made In Heaven or Hell?

I really don't have anything against 401(k) Plans. The corporate match is a nice benefit and the automatic deductions from payroll checks insures that employees will have some savings towards their retirement.

What does concern me, however, is how much hard working employees are being ripped off by a cozy system that they simply do not understand. The perpetrators of this mess are their employers and the bevy of pension consultants who "advise" these plans.

Almost every major corporate employer utilizes the services of these consultants. There are almost 2000 of them. They are supposed to place the interests of the employees above their own. This means that the advice they give should be totally objective, transparent and free of conflicts.

Unfortunately, for many pension consultants, this is simply not the case.

Don't take my word for it. Check out a little publicized study by the Securities and Exchange Commission dated May 16, 2005, entitled Staff Report Concerning Examinations of Select Pension Consultants, available here.

It really is enough to make you sick.

Many pension advisors have consulting relationships with both employers and with the mutual funds they recommend for inclusion in the plan.

So much for disinterested, objective advice.

Some have affiliated broker-dealers, creating an incentive for the consultant to recommend that the 401(k) Plan trade actively, since the consultant benefits from brokerage commissions.

Do you think this might be the reason why so few pension consultants recommended the inclusion of a broad range of index or passively managed funds in a 401(k) Plan? This terrible advice certainly is not based on any objective review of the overwhelming data indicating that these funds consistently outperform more expensive, actively managed funds over the long term.

And then there are the really insidious arrangements that are never disclosed. Let me give you a few examples.

Some pension consultants host conferences at lavish resorts for their corporate clients. The HR people and other corporate big wigs get their tab picked up by the consultants.

Who else attends these conferences? You guessed it. The money managers who run the funds that somehow get recommended for inclusion in your 401(k) Plan. They get charged a fee. The fee covers the "free" attendance of the company reps. Get it now?

Everyone's a winner.

Except you.

This one is my personal favorite.

Some consultants "sell" software programs to the money managers whose funds are recommended for inclusion in your Plan. The fees for these programs can be as high as $70,000.

The fact that these programs are commercially available for a fraction of these costs is not a mystery. Everyone knows how the game is played.

Except you.

The list goes on, but I am sure you get the drift.

While these common abuses are reprehensible, they pale in comparison to the fact that so many 401(k) Plans include a dizzying array of actively managed funds in them. At least now you understand why this is the case.

There is a model 401(k) plan in this country. It is huge. Guess who runs it? The U.S. Government! It is the 401(k) plan for all government employees, including all members of our military forces.

It has no actively managed funds in it. The fees are extremely low. It has five, pre-allocated lifecycle funds that consist solely of index and passively managed funds. It rebalances automatically. You can check out the details here.

This model plan is run by The Federal Retirement Thrift Investment Board, which is an independent Government agency. The five members of the Board and the Executive Director "are required by law to manage the TSP prudently and solely in the interest of the participants and their beneficiaries."

And that is precisely what they do. To their great credit.

You deserve a 401(k) that is as good as this one. If you are not getting it -- and few of you are -- make your voices heard.

Start by complaining to your HR department. Show them this blog. Tell them you want a Plan that is free of conflicts. You want an advisor who will provide unbiased, totally objective, disinterested advice. You want funds in the plan that are solely low cost index or passively managed funds. Make your voice heard.

There is no valid reason why your Plan should not be as good as the Plan for government employees. Demand it.

You deserve it.